(1)Notwithstanding
any law to the contrary, if any payment required to be made by a state
of the
Federated States of Micronesia pursuant to the terms of a loan from
the
National Government is not made when due, the National Government
shall be
entitled to exercise any or all of the following rights of set-off:

(a)The
National Government may withhold and apply to the payment of said
delinquency
any funds which it owes and would otherwise be required to pay to the
state without
previously or subsequently seeking or obtaining any judicial approval
of such
action;

(b)The
National Government, without previously seeking or obtaining any
judicial
approval of such action, may withhold for possible future application
to the payment
of said delinquency any funds which it owes and would otherwise be
required to
pay to the state, provided that such withholding shall cease and the
funds so
withheld shall be promptly paid to the state if, within 60 days after
the date
the withheld funds were required to be paid to the state, legal action
has not
been commenced in the FSM Supreme Court to seek judicial determination
of the
rights of the state and National Government to the funds.If such legal action is timely commenced, the
funds withheld shall be disposed of as directed by the Court; and

(c)The
National Government may withhold and apply to said delinquency any
funds which
it owes and would otherwise be required to pay to the state to the
extent
authorized in advance to do so by the FSM Supreme Court.

(2)Funds
subject to set-off under this section are limited to the state’s share
of
National Government tax receipts and the state’s share of any funds
received
from the United States under section 211 or section 217 of the Compact
of Free
Association.Funds are
“required to be
paid to a state” for purposes of this section whenever they must be
disbursed,
remitted, credited, or otherwise transferred to the account and for
the benefit
of the state, whether through cash, check, wire transfer, book entry,
or other
means.

(3)Funds
withheld pursuant to this section shall be invested by the Secretary
of Finance
in good faith in the same manner as other National Government funds
and any net
investment gains or losses shall accrue to or be borne by the party
ultimately
entitled to receive such funds.Unless
a
withholding or application was both wrongful and in bad faith, the
state shall
not be entitled to any recovery of damages or interest, whether for
the period
before or after judgment, beyond return of the amount wrongfully
withheld as
adjusted by such net investment gains or losses.

(4)No
funds shall be released from the General Fund or any Special Fund of
the
Treasury of the Federated States of Micronesia pursuant to any
existing or future
agreement by the National Government to lend money to a State, or on
behalf of
a State under circumstances wherein the State will or may be under an
obligation to make repayments, without the Secretary of Finance first
certifying that the State has, by appropriate legislative and
executive action,
bound itself to be subject to the set-off provisions of this section.

Source:PL 9-136 § 3.

Editor’s
note:The word “set-of” in
subsection (4) of this
section was corrected to “set-off”.

Cross-reference:The statutory provisions on
the FSM Supreme
Court and the Judiciary are found in title 4 of this code.